AUD rallies on business confidence

There has been some movement in the AUD this morning with a spike on the back of a better-than-expected house price index reading and further improvement in NAB business confidence.

However home loans fell to -1.9%, much worse than expected, but this figure was largely ignored by the market. AUD/USD spiked to 0.898 following the data, after having been sidelined at 0.895 for most of the past 24 hours. The pair is now headed towards key psychological resistance at 0.90; where it has stuttered recently. Should it manage to clear this level then it will be facing January highs at 0.908 as the next key level.

Focus now switches to the USD side of the equation as the next key local reading will be jobs numbers on Thursday. Janet Yellen’s inaugural monetary policy testimony will set the pace for the USD after a few days of subdued trading.

USD in focus ahead of Janet Yellen’s testimony

Yellen will testify before the House later today and the Senate on Thursday. We also have Fed member Charles Plosser on the wires. As it stands it seems the market is positioned for a fairly dovish speech by Janet Yellen.

The mere appreciation we’ve seen in gold with four consecutive sessions of gains suggests there is a camp expecting Yellen to sound more cautious on the pace of tapering. This move was triggered by Friday’s disappointing payrolls reading.

While we are unlikely to hear any policy changes from Yellen, it is likely she will deliver a balanced speech which will essentially reinforce what we’ve already heard from recent Fed meetings and commentary.

While acknowledging the improvement in the job market, Yellen is likely to highlight that the jobs market is still operating below capacity while inflation is tracking well below trend. She is also likely to reinforce that an accommodative stance remains imperative and potentially that asset purchases are not on a pre-set course. Forward guidance might also be up for consideration after the unemployment rate dropped to 6.6% on Friday.

Admittedly, it seems the Fed feels the asset purchase program (APP) has run its course and they are likely to remain comfortable tapering at the current pace.

AUD/USD

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.